Reference no: EM133903197

Problem

We have learned about four types of adjustments: (1) deferred expenses, (2) deferred revenues, (3) accrued revenues, and (4) accrued expenses. Use the concepts learned from the text to address the following situation: As the book-keeper for your company you are required to create quarterly financial statements (Income Statement, Statement of Owner's Equity, Balance Sheet and Statement of Cash Flows) in order to report on the financial activities of the company for the quarter (three months). It is now March 29th, and in preparation for creating the 1st quarter's financial statements (as of 3/31), you have called a meeting with the Dept. Managers for Accounts Receivable and Accounts Payable to confirm deadlines that will need to be met for recording all March-related transactions. As the meeting starts the owner walks in and sits quietly as you explain the deadlines. However, as soon as you have finished the owner speaks up and says "Well, for this quarter, if we have not paid March invoices by March 31, there is no need to record them as a March expense. We can record/expense those invoices when we pay them in April or May or whenever."

Task

Comment on the following, Do you agree with the owner's statement? Why/Why not? Is the owner's approach in accordance with accounting principles? What principle would apply in this situation? Would an adjusting entry be/not be necessary? If so - which of the four types of adjusting entry do you think is need?